Macroeconomics Exam 2
If a farmer grows a head of cabbage with fertilizer costs of $0.10 and seed costs of $0.15 and sells it to a wholesaler for $0.55, the total value added by the farmer is
$0.30
If the MPC is .60 and disposable income increases from $20,000 billion to $22,000 billion, consumption will increase by
$1,200
Assume you have $2,000 in a savings account at the beginning of the year and the price level is equal to 100. If the price level is equal to 120 at the end of the year, the real value of your savings is closest to
$1,667
If nominal GDP was $11,500 billion in 2004 and the price level in 2003 was 111.6, then real GDP would have been approximately
$10,305
At which income level does consumption equal income in Table 9.1
$250
If the MPC = .80 the total change in spending resulting from an initial $500 decrease in aggregate spending will be
$2500
Assume you have $5,000 in a savings account at the beginning of the year and the price level is equal to 100. If the price level is equal to 125 at the end of the year, the real value of your savings is closest to
$4,000
Suppose iPhones cost consumers $200 and USB cables cost consumers $25. What contribution does the production of 2000 iPhones and 1200 USB cables make to GDP?
$430,000
Given the information in Table 9.2, saving equals investment at an income of
$700 billion
If nominal GDP IS $9,600 billion and the GDP deflator is 118.5, real GDP is
$8,101.3 billion.
Suppose lower expectations lead to a decrease of $240 in desired investment in the economy and the marginal propensity to consume is .75
-$135
Given that C= $1,000 + 0.60YD, if the level of disposable income is $1,000, the level of saving
-$600
Suppose a consumption function is C= $500 + .75YD the marginal propensity to consume is
.75
If an increase in disposable income causes consumption to increase from $4,000 to $10,000 and causes saving to increase from $2,000 to $4,000, it can be inferred that the MPC equals
0.75
The MPC + MPS must always equal
1
Suppose that in a population of 50 million persons, 40 million are in the labor force, 36 million are employed, 2 million are classified as unable to work, and 1 million are classified as unwilling to work. The unemployment rate is
10%
If the CPI increases from 110 to 125 for one year, the rate of inflation for that year is:
13.6 percent
Based on Table 7.1, the rate of inflation between 2003 and 2004, using GDP deflator, was
2.9 percent
If consumers spend 80 cents out of every extra dollar received, the multiplier is
5
If the nominal interest rate is 13 percent and the anticipated rate of inflation is 8 percent, the real interest rate is
5 percent
Suppose a country has 10 million people. Three- fourths of those individuals are in the labor force, with 500,000 unemployed. Full employment occurs at 5 percent. Based on this information, what is the unemployment rate?
6.67 percent
Which of the following will not cause an increase in U.S. gross exports
A decrease in U.S. imports.
Which of the following will cause a decrease in U.S gross exports
A decrease in foreign business purchases of U.S. output.
If the current macroequilibrium is below an output level of that associated with full employment, how would the current equilibrium be impacted by a rightward shift of the aggregate supply curve, ceteris paribus?
A lower price level and a higher level of output.
The consumer price index is
A measure of changes in the average price of consumer goods and services
Which of the following is included in the labor force?
A part-time store clerk who is looking for another job
On the basis of Table 5.1, personal income is
A. $5,620 billion.
According to the hypothetical economy in figure 5.1, between 1960 and 1970 real GDP declined but nominal GDP continued to rise. The increase in nominal GDP was due to
A. An increase in the price level greater than the decrease in output, causing the nominal dollar value of output produced to increase.
Using the output at which the aggregate expenditure curve intersects the 45-degree line, we can identify: A. Equilibrium (macro) at the intersection point. B. Dissaving to the right of the intersection point. C. Full employment to the left of the intersection point if there is a recessionary gap. D. A consumption shortfall at the intersection point.
A. Equilibrium (macro) at the intersection point.
If the availability of credit increases, then
AD curve will shift to the right
If wealth rises,
AD curve will shift to the right
To be officially counted as unemployed, one must be:
Actively seeking employment and currently not working.
GDP can be calculated by all of the following methods except
Adding up all income and expenses by consumers and businesses
Macro equilibrium always occurs when
Aggregate demand equals aggregate supply at a given average price level.
cost of living adjustment
Allow individuals to maintain their purchasing power during inflation
Production possibilities are the
Alternative combinations of output that can be produced using all available resources and technology
A sudden increase in confidence by the business community could best be represented by
An aggregate expenditure curve shifting upward.
A COLA is
An automatic adjustment of nominal income to the rate of inflation.
Hyperinflation is
An inflation rate in excess of 200 percent, lasting at least one year
People are not part of the labor force when they:
Are old enough to work but choose not to work.
According to classical economists, market-driven economies
Are typically self-adjusting.
The consumption function will shift when
Autonomous consumption changes.
On the basis of Table 5.2, disposable income is
B. $2,805 billion
If for a given year gross investment is $300 billion and depreciation is $75 billion, then, for that year, the capital stock __________ and net investment was ________.
B. Increased by $225 billion; $225 billion
A tax cut can best be characterized as A. Both fiscal and supply-side policy. B. Both monetary and supply-side policy. C. Fiscal policy only. D. Monetary policy only.
Both fiscal and supply-side policy.
Businesses return purchasing power to the circular flow in the form of
Business investment
Choose the letter below that best represents the type of shift that would occur in each situation in the United States: during the Great Depression, most other countries suffered similarly long and deep losses of output and employment, which in turn meant fewer purchases of U.S. goods and services
C
On the basis of Table 5.3, the net addition to the capital stock is
C. $1,400 billion.
Given that autonomous consumption equals $1,000, disposable income equals $20,000, and the MPC equals 0.80, the level of
Consumption equals $17,000.
In a graph with disposable income on the horizontal axis and consumption on the vertical axis, the intersection of the 45-degree line with the
Consumption function indicates zero saving.
The components of aggregate demand are:
Consumption, government spending, net exports, and investment.
Which diagram in figure 9.4 shows what is likely to happen to investment as new telecommunications technology suddenly is discovered that greatly facilitated the use of computers, cable TV, and other information services
D
If the cost of your gasoline purchases decrease from $150 per month to $80 over a period of one year due to lower prices and your income decreases from $1,600 per month to $1,500 per month, your nominal income has
Decreased, but your real income has increased.
In Figure 9.8, if full-employment income is produced at $400 billion, the government can reduce a recessionary gap by
Decreasing income taxes on consumers
discouraged workers
Do not actively seek employment although they desire to be employed.
In periods of rising prices, percentage increases in nominal GDP will
Exceed percentage increases in real GDP.
The investment demand curve would shift to the left because of
Expectations of a recession.
Gross investment is the
Expenditure on new plants, equipment, and residential construction, plus changes in business inventories.
The core inflation rate excludes
Food and energy prices
After being fired from a job, some people find that it may take several months to find a new job. This is an example of which of the following types of unemployment?
Frictional unemployment
If GDP grows more rapidly than population for a particular country over a period of time, then we can determine that
GDP per capita has increased
Which of the following is treated differently in computations of GNP as compared with GDP
Goods produced by U.S. firms located in foreign countries.
If business inventories decrease below desired levels, then it is likely that a
Higher price level will occur.
One in the news article states that the underground economy includes transactions that are untaxed or unaccounted for in GDP. According to this article, the underground economy
Impacts the amount of tax dollars collected.
A vertical aggregate supply curve
Implies that aggregate demand shifts have no impact on output.
The labor force participation rate is the number
In the labor force divided by the working-age population.
Assuming an upward-sloping aggregate supply curve, when aggregate demand decreases, unemployment
Increases and the price level decreases.
A major diversion that is not of the income flow to the private sector is
Indirect business taxes
The lowest level of unemployment compatible with price stability
Is referred to as full employment.
A recessionary gap
Is the amount by which the rate of actual spending falls short of full-employment GDP.
The GDP deflator
Is the broadcast price index, covering all output
Which of the following statements is not true about the consumption function?
It indicates that consumption is inversely related to disposable income
When the economy is at equilibrium
Leakages equal injections
During a period of deflation,
Lenders are better off
According to Keynes, cyclical unemployment is caused by too
Little aggregate demand
The GDP per capita is the most practical way to
Make international comparisons of the standard of living.
national income accounting is defined as the
Measurement of aggregate economic activity.
Keynes was concerned that at macroeconomic equilibrium the economy would experience
Neither full employment nor price stability.
The value of final output produced in a given period, measured in current prices, is
Nominal GDP
Real GDP is more accurate than nominal GDP in making comparisons of output over time because
Nominal GDP can increase simply because of price increases over time.
If cyclical unemployment is zero, the economy is
On the fixed production possibilities curve.
Ceteris paribus, if structural unemployment increases, the economy is
On the production possibilities curve that shifts inward
If the CPI doesn't measure product quality improvements, the CPI tends to
Overstate the inflation rate
For the labor force to definitely increase,
People must turn from being discouraged workers into people actively seeking employment.
Internal market forces include
Population growth, spending behavior, and invention.
According to Keynes, when the economy falters, the government should do any of the following except
Practice a laissez faire policy approach
The producer price index is the best index to measure average price changes faced by
Producers
The alternative combinations of final goods and services that can be produced with all available resources and technology are the
Production possibilities
In the long run, which of the following is true?
Profit effects offset cost effects
prices are used in national income accounting for all of the following reasons except to
Provide an index to measure unemployment.
A growth recession is said to occur when the economy grows at a
Rate less than the long-term average.
To measure an economy's output adjusted for changes in the price level, one would use:
Real GDP
If deflation is 0.5 percent per year and you receive a 1 percent decrease in your salary, then your:
Real and nominal income both fall.
Outsourcing is the
Relocation of production from domestic companies to foreign countries
Suppose a friend claims he is helping the economy by throwing trash on the street rather than in trash cans because the extra expenditures necessary to clean up the streets will increase GDP. Your friend is
Right. GDP will increase, ceteris paribus.
When there's a shortage in the number of jobs available when teenagers look for summer jobs, the type of unemployment that arises is called
Seasonal unemployment
Which of the following types of unemployment would best characterize a snow ski instructors employment during the summer months?
Seasonal unemployment
Gross exports for the United States depend most directly on the
Spending behavior of foreign consumers and businesses
Changes in relative price may occur in a period of
Stable prices, inflation, or deflation
Net Domestic Product (NDP) is determined by
Subtracting depreciation from GDP.
An inflation goal set at a low rate but greater than zero allows all of the following except
The Fed to meet less often.
Unemployment is defined as
The active search and inability of labor force participants to find jobs.
A decrease in U.S. exports to Japan can be represented by
The aggregate expenditure curve shifting downward.
According to Figure 7.1 which of the following statements was definitely true about country B
The average price in general increased over the time period 1970 to 1995
Full employment in the U.S. economy means that
The economy has reached the lowest level of unemployment compatible with price stability.
Unlike the classical economists, Keynes asserted that
The economy was inherently unstable.
National income is a measure of
The income earned by the factors of production in producing GDP.
If more teenagers stay in school longer rather than dropping out and entering the labor force,
The production possibilities curve shifts inward.
Which of the following statements is true?
The production possibilities of the economy define the limits to real income
Controversies between Keynesian, monetarist, supply-side, and eclectic theories focus on:
The shape and sensitivity of aggregate supply and aggregate demand curves.
If we assume that government expenditure, investment, and net exports are not affected by income, the slope of the consumption function equals
The slope of the aggregate expenditure curve
The base period is the
Time period used for comparative analysis.
When calculating GDP, consumption makes up approximately
Two-thirds of total output.
Supposed a student graduates from college wii a civil engineering degree and is now employed to grade papers, answer the phone, and make copies-tasks that are below the graduates capabilities. The graduate can best be classified as
Underemployed
Money illusion is the
Use of nominal dollars rather than real dollars to gauge income or wealth.
Suppose the total market value of all the finals goods and services produced in the country of Rushya was $8 billion in 2008 (measured in 2008 prices) and $9 billion in 2009 (measured in 2009 prices.) which of the following statements is definitely correct?
Whether real GDP increased cannot be determined with the information given
Which of the following will cause the investment demand curve to shift to the right?
an improvement in technology
The movement from point A to point B on the graph shows
an increase in aggregate demanded
Inflation is
an increase in the average level of prices of goods and services
Changes in real GDP are used to measure
business cycles
If OPEC raises the price of oil and production costs increase, this may cause
cost-push inflation
Which of the following unemployment categories is most clearly related to the rate of growth in real GDP
cyclical
A rise in interest rates will cause
decline in investment spending
A decrease in the average level of prices of goods and services is
deflation
The wearing out of plants and equipment is known as
depreciation
The measure of what households receive after personal income tax is deducted is
disposable income
Those that work part-time and do not desire full-time employment are referred to as
employed
Demand-pull inflation is caused by
excessive aggregate demand (aggregate or total spending).
Nancy returns to school to study medicine. After graduating, she spends six months looking for a job. During this period she is considered:
frictionally unemployed
Samantha recently quit her job at the university because she is looking for another job for which she is qualified in a small town. Samantha is
frictionally unemployed
Studies have shown that unemployment causes
increased health problems
If the price of iPods rises 10 percent during a year when the level of average prices rises 3 percent, the relative price of iPods compared with other goods
increases
A furniture factory produces dining room sets. The lumber it purchases from the lumberyard is a/an
intermediate good
The Great Depression did not
lead to a high rate of inflation
Real income is
nominal income adjusted for inflation
Someone 18 years old who is not employed and is not actively seeking work is considered
not in the labor force
External shocks include all of the following except
population growth
Real GDP is better than nominal GDP for measuring growth because real GDP has been adjusted for changes in:
price level
Injections include all of the following except
saving
The measure of the part of disposable income that is not consumed is
saving
After the harvest, some farmhands lose their jobs. They are considered to be
seasonally unemployed
Investment spending includes expenditures on all of the following except
stocks and bonds
Tom worked at NASA for thirteen years. In the fourteenth year, his job was automated, resulting in him losing his job. He looked for a new job for eighteen months before finding a job that paid less. During his eighteen month job search, Tom was considered to be:
structurally unemployed
There is a trade-off between unemployment and inflation when the aggregate
supply curve is upward sloping
If leakages exceed injections
the economy is contracting
Value added is the
the increase in the market value of a product that takes place at each stage of the production process
All of the following are macroeconomic effects of inflation except
to lower taxes
APC is equal to
total consumption divided by total disposable income
Two potential problems with macro equilibrium are
undesirability and instability
